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      Question

      The value of derivative is determined by

      A Value of underlying Correct Answer Incorrect Answer
      B Notional principal amount Correct Answer Incorrect Answer
      C FIMMDA Correct Answer Incorrect Answer
      D Equity Correct Answer Incorrect Answer

      Solution

      Derivatives are so called because they have no value of their own. They derive their value from the value of some other asset, which is known as the underlying. For example, a derivative of the shares of Infosys (underlying), will derive its value from the share price (value) of Infosys. Similarly, a derivative contract on soybean depends on the price of soybean.

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